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Following is the transcript of the media session by the acting Chief Executive, Mr Donald Tsang, after the Executive Council meeting today (Tuesday):

Question: I am just wondering whether you can summarise what you said.

Mr Tsang: Well, I have, perhaps, a few words, Francis. I am really most grateful for the way in which the news media has reported the events over the last few days, in that the Hong Kong public is now familiar with the cause of the problem, which is that there is great volatility in the yen and dollar exchange rate which has affected the economic performance across the Asia region, as well as other regions.

In order to regain any stability we must urge - we must urge the leading economies, particularly Japan and America, to come forward to stabilise the situation. It is not doing anybody any good, at all. And G7, as well, must step in.

But as far as Hong Kong is concerned, we have done our very best. We have seized this opportunity to make our system even more transparent, even more robust. For that reason, the Hong Kong Monetary Authority is now reporting the liquidity balance of various banks and the total liquidity balance - or the monetary balance - to the extent that the various market participants can react very sensibly, very rationally. So we have seen, now, much less volatility in interest rates over the last two days and a much more calmer response across the financial sector. But it is true that what we have seen is that the continued volatility in the yen exchange rate means that interest rates are likely to be higher than normal in Hong Kong, and we still have to be very alert to what is happening around us.

Question: Mr Tsang, if Japan is to act, (a) what do you want them to do, and (b) what would you say ... the exchange rate? What is the point that you think the yen...?

Mr Tsang: Well, the market will have its own judgment. As far as I am concerned, as Hong Kong is concerned, I believe it is important - it is incumbent on the Government of Japan and the Government of the US to stabilise this situation. They must tell the rest of the world which is a reasonable level from their point of view, for the yen and the dollar exchange rate to be at. Unless there is some stability, then I am afraid the volatility will affect everyone, including the Japanese institutions and including the American market in the long run.

Question: Can you tell us - the Hong Kong Government has for a long time said Hong Kong people need to be patient. How much longer do you anticipate that Hong Kong would feel the pain of financial crisis? And also will re-pegging of the dollar at a different exchange rate be an option?

Mr Tsang: First of all, let me answer the second question which is easy. Our firm policy is that the linked exchange rate is a fundamental economic principle, and a fundamental policy for maintaining Hong Kong's stability and prosperity. It is not going to change. And in fact moving the linked exchange rate now will create immediate chaos and will bring havoc to the economy. It is not something we will contemplate at all. So rule it out of your mind, rule it out completely.

On the first question, I am afraid some things we can't control. On the economics, particularly with the very open economy of Hong Kong, some things are out of our control. We are quite clearly - we need external investment to ensure that we have economic activity and economic prosperity in Hong Kong, and that in turn means that we have to comply with international disciplines. There are lots of things that we will not be able to do. We won't be able to breach completely our fiscal policy. We are unable, for instance, to incur a major deficit in our foreign accounts. For these reasons, we have to be patient about it. How long it will be? I want it to be as short as possible. That is why I am calling for the governments of Japan and the US to act promptly.

It is not only Hong Kong. Hong Kong is, in fact, suffering the least compared with most other neighbouring economies. It is for the Japanese people, for the rest of Asia that we need great stability, otherwise the whole region will suffer.

Transcript of acting Chief Executive's media session (chinese part)

End/Tuesday, June 16, 1998

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